Kazakhstan's president departs after decades of tight control. Could it kickstart a privatisation push?

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Nursultan Nazarbayev, Kazakhstan's first and only leader since independence, agreed in mid-March to relinquish the presidency after almost 30 years at the helm of Central Asia's largest economy, while retaining a title of "leader of the nation".

In a move than surprised regional analysts, the Kazakh strongman resigned saying he wanted to "support the coming to power of a new generation of leaders, who will continue the transformations taking place in the country".

The powers that Nazarbayev will retain, however, has led to scepticism he will fully step back from politics. In 2017, he was awarded lifelong chairmanship of the Security Council, which allows him to dismiss government functionaries at the central and regional levels, essentially giving him power to block any successor's appointments.

Previously, Nazarbayev had denied plans to resign, insisting he would at least compete in a 2020 national election. But recently rumours arose of deteriorating health—he will turn 79 in July—and he appeared frustrated by public protests and the slow progress of the country's privatisation plans.

"While the reality is that the privatisation program is somewhat losing traction and the demand has been tepid, the government appears determined to pursue the privatisation as an important pillar of the country’s strategic economic reform," says Aset Shyngyssov, managing partner for Kazakhstan at law firm Morgan Lewis.

Kazakhstan launched a $70bn programme of privatisations aimed at opening up the economy, with mixed results. An initial public offering of the national uranium producer, Kazatomprom, could only be considered a partial success. The company was valued at $3bn but only managed a 15pc sale—down from the 25pc stake planned—after it was listed in both London and Astana.

A proposed IPO of the national hydrocarbon producer, KazMunaiGaz now looks likely to be delayed until at least 2020, after the next election. Officials have said that the government is awaiting improved market conditions for the IPO, but analysts say that a recovery in oil prices in 2019—Brent climbed well above $70/bl in April—has also played a part in its timing.

"The [government] tends to announce large privatisation efforts when commodity prices fall and then delay efforts when they rise, so higher commodity prices remove any sense of urgency," says Tobias Vollmer, senior analyst at Prism, a political risk consultancy.

Kazakhstan has agreed to reduce oil production as part of Opec+ cuts announced last year, by around 40,000bl/d to 1.86mn bl/d. But energy minister Kanat Bozumbayev said the country could reduce as much as 60,000-70,000bl/d. Later in the year, technical maintenance at the Kashagan and Tengiz fields​ will help to meet the goal.

Kazakhstan still has plans to lift production after the Opec+ cuts expire, and Halyk Finance, a Kazakh investment bank, predicts oil and gas production could grow by just under 4pc p.a. between 2019-2023. The increase will largely be driven by expansions at Tengiz (850,000-900,000bl/d), as well as Kashagan, while the Karachaganak oil field is expected to hit 12-13mn t/yr. For natural gas, the ministry estimates by 2020 output will increase annually by roughly 4.1pc to achieve 87mn m³/d.

Cleaning up

But predicted growth in the energy sector could be impacted by wider economic issues. Nazarbayev has frequently been angered by problems in the banking sector and over the last two years almost $13bn was issued in bailouts as several smaller banks collapsed. In February, he replaced the prime minister and the head of the National Bank and a large swathe of the cabinet resigned after the government was forced to raise $3.6bn to prop up Tsenabank, the country's second largest bank.

At the Economic Forum in Astana last May, Nazarbayev had promised the problems were finally solved, but when they resurfaced he called his government "cowards" and quickly reshuffled the cabinet.

"Kazakhstan's banking sector is characterised by vested interests of individuals close to Nazarbayev, which compromises its stability. Not only does this further undermine the central bank's independence, it also reveals an antiquated concepts over the role of a central bank," says Vollmer.

Next in line

The leading candidates to replace Nazarbayev include his daughter, Dariga Nazarbayeva, and the current interim president, Kassym-Jomart Tokayev In December, Nazarbayev dismissed the chances of his daughter taking office but equally rebuked Tokayev's previous statements that another candidate might stand for office in the 2020 election.

Tokayev first served in Nazarbayev's cabinet in 1992 and importantly speaks both Chinese and Russian—balancing diplomatic relations with Kazakhstan's neighbours has been vital to Nazarbayev's success. His long-standing connection to Nazarbayev lead to expectation that he would maintain current policies and be closely counselled.

But, while Kazakhstan's privatisation plans appear to be moving slowly, the arrival of a new president could yet alter their trajectory. "Kazakhstan's wider privatisation plans have lost momentum, but they will continue in some shape or form as the republic urgently needs cash injections to pay for social spending to legitimise the next president," says Vollmer.